[Federal Register Volume 60, Number 182 (Wednesday, September 20, 1995)]
[Notices]
[Pages 48702-48704]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23313]
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DEPARTMENT OF ENERGY
[Docket No. PR95-11-000]
Egan Hub Partners, L.P.; Order to Show Cause
Issued September 14, 1995.
On May 11, 1995, Egan Hub Partners, L.P. (Egan) filed a petition,
supplemented on August 11 and August 18, 1995, in Docket No. PR95-11-
000 for authority to charge and collect individually-negotiated,
market-based rates for interstate storage and transportation services
performed under section 311 of the Natural Gas Policy Act of 1978
(NGPA). The instant order establishes a show cause proceeding, pursuant
to sections 5, 7, and 16 of the Natural Gas Act (NGA), to investigate
the jurisdictional implications of Egan's proposed construction of
storage facilities for NGPA ``section 311 only.'' As discussed below,
the Commission is requiring Egan to show cause why the proposed storage
facilities should not be subject to the Commission's NGA jurisdiction.
Background and Description of the Facilities
Egan is owned by Egan Hub Partners, Inc., its sole general partner
and Market Hub Partners, L.P., its sole limited partner. Tejas Power
Corporation (Tejas) indirectly owns a 66 percent interest in Egan. Egan
provides intrastate transportation services through its intrastate
pipeline facilities located in Calcasieu, East Baton Rouge, and Pointe
Coupee Parishes, Louisiana. Egan currently provides intrastate
transportation services to three gas customers: an electric utility, a
university, and an industrial user.
On February 3, 1994, Egan filed a notice with the Commission under
18 CFR 284.11 stating that it intended to commence construction of an
underground salt dome storage cavern and appurtenant facilities,
including pipeline facilities in Acadia Parish, Louisiana, to be used
solely for the purpose of providing services pursuant to section
311(a)(2) of the NGPA. Egan anticipated that construction of the
facilities would cost approximately $56 million and take approximately
two years to complete, with the facilities available for service during
the 1995-1996 winter heating season.
Egan states that the storage facilities are approximately nine
miles from Louisiana Gas System Inc.'s (LGS) intrastate pipeline
facilities. According to Egan, an interconnection with LGS has not been
pursued because of a lack of firm demand for Egan's services. Egan adds
that if both intrastate and section 311 gas are stored in the field,
the gas may become subject to state regulatory control in the event of
a curtailment. As a result of these uncertainties, Egan states that it
elected to construct the storage and transportation facilities as
``section 311 only'' facilities.
On May 11, 1995, Egan filed a petition in Docket No. PR95-11-000
for authority to charge and collect individually-negotiated, market-
based rates for interstate storage and transportation services
performed under section 311. Egan states that construction of the first
cavern is nearing completion and will be ready for service on or about
September 1, 1995. The cavern will have a capacity for 4.5 Bcf of
working gas, with an additional 1.2 Bcf of pad gas. The maximum
injection rate is expected to be 135,000 Mcf/d and the maximum
deliverability rate is expected to be 750,000 Mcf/d. Two compressors,
having a total of 6,260 horsepower, will also be installed. Egan states
that as many as four additional caverns could be located at the site,
if future demand justifies a need for such additional storage.
Egan states that it has constructed approximately 9,240 feet of
dual 20-inch pipeline, and 19,117 feet of dual 24-inch pipeline, as
well as other related pipeline facilities in Acadia Parish to provide
the ``section 311 only'' services.1 These facilities will enable
Egan to transport, store and/or deliver gas to and from the interstate
pipeline systems of ANR Pipeline Company, Trunkline Gas Company,
Tennessee Gas Pipeline Company, and Texas Gas Transmission Corporation.
\1\The facilities are the subject of a 30-day prior notice filed
with the Commission on February 3, 1994 in Docket CP94-217-000.
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Egan states that pursuant to an open season conducted between
January 3
[[Page 48703]]
and January 14, 1994, three customers have signed long-term firm
storage contracts. Those customers are the East Ohio Gas Company, the
Northern Indiana Public Service Company, and Tejas Power Corporation.
The committed capacity under these contracts totalled 2,900,000 Mcf.
Egan contends that if its petition to charge market-based rates is
approved, Egan's contract storage and transportation services will be
available to help facilitate the Commission's on-going restructuring of
the natural gas industry.
Discussion
The Commission is concerned that Egan's construction of storage
facilities in Acadia Parish pursuant to section 311 actually may be
construction of interstate facilities subject to the Commission's
jurisdiction under section 7(c) of the NGA. It appears that Egan's sole
purpose in constructing the storage facilities is to provide interstate
storage and hub services, in facilities that are physically separate
from its existing intrastate facilities, for a purpose that bears no
apparent intrastate/local distribution purpose and appears unconnected
to any other nonjurisdictional operation.
In 1978, the NGPA was passed to reduce the restraints on the flow
of gas between interstate and intrastate markets in order to remedy
supply and demand imbalances. The Commission recognizes that one
purpose of NGPA section 311 is to enable intrastate pipelines to
transport gas destined for the interstate market and thus spare
interstate pipelines from having to construct duplicative
facilities.2 The NGPA accomplishes this by permitting intrastate
pipelines to perform such transportation without becoming subject to
NGA jurisdiction over the entirety of their operations. As the
Commission stated in Lear Petroleum Corporation:
\2\Lear Petroleum Corp., 42 FERC para.61,015 at 61,043 (1988).
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NGPA sections 601(a)(1)(C) and (a)(2)(A) provide that the
intrastate pipelines do not become subject to the NGA by virtue of
section 311 transactions. This ensures that intrastate pipelines are
only subject to Commission regulation of their rates for section 311
transactions. Intrastate pipelines do not become subject to
Commission regulation of their intrastate activities or of
construction of facilities used for intrastate transportation.3
\3\Id. See also Mustang Energy Corp. v. FERC, 859 F.2d 1447
(10th Cir. 1988).
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In Order No. 46, the Commission explained that ``if a corporate
entity qualifies as an intrastate pipeline under [NGPA] section 2(16),
it will retain that identity for its entire system even if it
constructs a new portion of its system to be used exclusively for
section 311(a)(2) transportation.'' 4 Further, the Commission has
determined in prior orders that an intrastate pipeline may, in certain
circumstances, construct new facilities that are not contiguous to the
intrastate pipeline's existing intrastate facilities for use in
transactions under section 311(a)(2).
\4\See Sales and Transportation of Natural Gas, Order No. 46,
FERC Stats. & Regs., Regulations Preambles 1977-1981 para.30,081 at
30,536 (1979); see also section 284.3(c) (``The Natural Gas Act
shall not apply to facilities utilized solely for transportation
authorized by section 311(a) of the NGPA'').
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For instance, in Seagull Pipeline Corporation, 11 FERC para.61,267
(1980), Seagull, an intrastate pipeline wholly owned by Houston Oil &
Minerals Corporation (HO&M), proposed to transport gas produced under
HO&M's Cavallo Field leases. Seagull transported 50% of the reserves
from the Cavallo Field leases on behalf of Valley Pipe Lines Offshore
(Valley), an intrastate pipeline subsidiary of Houston Natural Gas
Company, to Houston Pipe Line Company's (HPC) existing intrastate
pipeline facilities on State Tract 526. To transport Valley's gas,
Seagull constructed the Cavallo line. The Cavallo line, consisting of
approximately 15.5 miles of 16-inch pipeline, was not physically
connected to any other pipeline facilities included in Seagull's
existing intrastate pipeline system. Seagull sought also to transport
the remaining gas produced at the Cavallo Field to Texas Gas, an
interstate pipeline. Texas Gas would purchase the gas at a point of
delivery on HO&M's platform for delivery to HPC's existing intrastate
facilities through the Cavallo line. Seagull sought a declaratory order
that the Cavallo line was an ``intrastate pipeline'' and that Texas
Gas' volumes could be transported pursuant to NGPA section 311(a)(2).
The Commission determined that the construction of the new facility
(the Cavallo line) by an existing intrastate company did not change the
intrastate status of the existing facilities or system, and that the
new facility was itself an intrastate facility. The Commission reasoned
that the definition of an ``intrastate pipeline'' applies to the person
or corporate entity engaged in natural gas transportation and does not
apply to each discrete facility of or operation by the pipeline
company.5
\5\Seagull Pipeline Corp., 11 FERC para.61,267 at 61,522 (1980).
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Like the facts presented in Seagull, it appears that Egan's storage
cavern and appurtenant facilities in Acadia Parish are not physically
connected to any intrastate facilities which comprise Egan's existing
intrastate system. However, unlike Seagull, Egan intends to use the
storage facilities for section 311 service only. As discussed, section
311 was implemented to integrate the intrastate and interstate gas
markets, and intrastate pipelines were authorized to transport natural
gas on behalf of any interstate pipeline without subjecting the
intrastate pipeline to NGA jurisdiction. This purpose was clearly
served in Seagull because construction of the Cavallo line permitted
Seagull to engage in intrastate transportation to deliver gas on behalf
of Valley, another intrastate pipeline, as well as to perform section
311 service on behalf of Texas Gas, an interstate pipeline, through the
same facility.6 The Commission questions whether the NGPA's
purpose of integrating the interstate and intrastate gas markets will
be advanced if Egan constructs facilities that are separate from its
existing intrastate facilities, for the sole purpose of providing
jurisdictional services to interstate customers.
\6\The question addressed in Seagull was whether intrastate
status is changed where the new, separate facility was constructed
``for the purpose, in part, of providing'' 311 service. 11 FERC at
61,522 (emphasis supplied) (1980).
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While the Commission has stated that it is not unusual, much less
unlawful, for persons to structure transactions either to qualify for
regulation by one entity or to avoid regulation by another,7 at
some point such structuring may nevertheless be contrary to the public
interest and inconsistent with the underlying purpose of statutes
effecting a federal scheme of regulation. The Commission recognizes
that construction and operation of Egan's storage caverns and
appurtenant facilities would not frustrate the Commission's regulation
over the rates Egan proposes to charge and collect for interstate
storage and transportation services provided pursuant to section 311,
since the Commission regulates those rates. Rather, the Commission is
concerned that the purpose of the NGA may be frustrated because Egan
will construct facilities to be used entirely in interstate commerce
without becoming subject to the Commission's section 7(c) certification
procedures, or complying with the environmental and other requirements
of 18 CFR Part 1578 and
[[Page 48704]]
Order No. 636.9 In Order No. 636, the Commission required
pipelines to unbundle transportation and sales and implement certain
procedures including the requirement that interstate pipelines must
offer open access to its storage facilities on a firm and interruptible
basis.
\7\See, e.g., Riverside Pipeline Co., L.P., 48 FERC para.61,309
at 62,015-16 (1989).
\8\Although intrastate pipelines are required to follow the
environmental requirements of 18 CFR 157.206(d) for facilities
constructed under NGPA section 311(a), a section 7(c) certificate
requires case-specific environmental review and conditions.
\9\Pipeline Service Obligations and Revisions to Regulations
Governing Self-Implementing Transportation; and Regulation of
Natural Gas Pipelines After Partial Wellhead Decontrol, 57 FR 13267
(Apr. 16, 1992), III FERC Stats. & Regs. Preambles para.30,939 (Apr.
8, 1992).
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If the Commission determines that Egan's facilities are in fact
jurisdictional storage facilities, Egan may be required to obtain a NGA
section 7(c) certificate. In Petal Gas Storage Company,10 the
Commission determined that Petal Gas Storage Company (Petal), a wholly
owned subsidiary of Chevron U.S.A. Inc. (Chevron), and/or Chevron
violated section 7(c) of the NGA because construction of jurisdictional
storage facilities commenced before the requisite certificate
authorization and environmental clearances were obtained. Petal was
required to obtain a section 7(c) certificate to operate leased gas
capacity in Chevron's salt dome storage cavern, and to construct and
operate related facilities.11 The Commission also required Petal
to file a tariff conforming to Order No. 636, and imposed environmental
conditions.
\10\64 FERC para.361,190 (1993), as amended, 67 FERC para.61,135
(1994).
\11\Chevron, an independent producer, initially planned to use
its salt dome cavern in a nonjurisdictional manner or to obtain a
certificate from the State of Mississippi. Subsequently, Chevron
decided to form its subsidiary, Petal, to provide jurisdictional
stand-alone storage service to third parties.
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The Commission questions whether Egan should be deemed an
interstate pipeline, subject to the requirements of the NGA and Order
No. 636, when it constructs and operates new storage facilities for
exclusive use in interstate commerce. Accordingly, the Commission is
instituting this show cause proceeding, pursuant to sections 5, 7, and
16 of the NGA, to investigate further these matters. In its response,
Egan and other interested persons are encouraged to address the
concerns raised above by the Commission.
The Commission Orders
(A) Within 30 days of the issuance of this order:
Egan is required to show cause why the Commission should not
require Egan to obtain a NGA section 7(c) certificate to construct and
operate the storage facilities since the facilities are intended for
use in interstate commerce and appear unrelated to any other
nonjurisdictional operation on Egan's system.
(B) Notice of this proceeding will be published in the Federal
Register. Interested persons will have 20 days from the date of
publication of the notice to intervene.
By the Commission.
Lois D. Cashell,
Secretary.
[FR Doc. 95-23313 Filed 9-19 -95; 8:45 am]
BILLING CODE 6717-01-P